Method for managing a home equity sales program

ABSTRACT

A system and method for conducting a home equity sales (HES) program enables a real estate property owner to sell a partial equity ownership interest in a real estate property. This allows the property owner to sell the interest outright to an investor and receive compensation for the sale of the interest. The property interests of the property owner and the investor are both recorded in property records relating to that particular property. The property owner may sell multiple interests in the same property and an investor may also purchase these multiple interests.

INCORPORATION BY REFERENCE TO ANY PRIORITY APPLICATIONS

Any and all applications for which a foreign or domestic priority claimis identified in the Application Data Sheet, or any correction thereto,are hereby incorporated by reference under 37 CFR 1.57.

BACKGROUND OF THE INVENTION

1. Field of the Invention

This invention generally relates to conducting business transactions,and more particularly to providing a business model at least partiallybased on creating and managing investments in real property. Theinvention also relates to the formation of a market which allowsinvestors to trade property-based investments in a public or privatesetting.

2. Background of the Related Art

The option of obtaining money based on equity in real estate is wellknown. This option is often taken by homeowners looking for ways tofinance college tuition, make home improvements, or satisfy other needsor interests. The traditional way of obtaining money from equity inproperty involves applying for a loan, paying processing fees, andmaking payments with interest to the lienholder for the life of theloan. Obtaining loans, or other forms of debt, can have a beneficialeffect in terms of establishing a favorable credit report. By the sametoken, incurring additional debt can prove to be burdensome, especiallywhen interest rates are high.

Presently, homeowners and holders of other types of real property cannotextract funds from equity without incurring debt or selling their homeor moving to another house. Therefore, it would be advantageous toprovide property owners with an option that would allow them to obtainmoney based on the equity in their properties without incurring debt,and that would preferably allow them to continue to live in or otherwiseuse/occupy their properties with the same or similar degree of controlas previously existed and with the same or similar degree of taxbenefits. It would also be advantageous to provide investors with a newkind of investment that is based on partial interests in real propertythat could be separately held or bundled with other partial interestsand which could then be traded, for example, in a public or privatemarket.

SUMMARY OF THE INVENTION

An object of the invention is to solve one or more of the aforementionedproblems and/or disadvantages and to provide at least one of theadvantages described hereinafter.

Another object of the present invention is to provide property ownerswith an option that would allow them to obtain money based on the equityin their properties without incurring debt.

Another object of the present invention is to provide property ownerswith the aforementioned option and simultaneously allow them to live inor otherwise use/occupy their properties with the same or similar degreeof control as previously existed and with the same or similar degree oftax benefits.

Another object of the present invention is to achieve the aforementionedobjects by providing a new form of business transaction that will allowhomeowners to sell partial ownership interests in their residentialproperties to investors, take the cash from the sale, and use the cashin any way desired, all without the incursion of debt. Morespecifically, and in accordance with one embodiment, the transaction maybe structured in such a way that no interest payments are due, and in away that will allow the owner and/or occupant to continue living in andusing the house is any way desired. As a condition to the transaction,the investor may be required to waive rights to control and sale of theproperty. Exceptions include the right to receive proceeds from the sameand, optionally, a right to approve of a sale price.

The transaction may also be conditioned on the investor waivingadditional rights, including the right to take a Federal income taxdeduction on the partial interest in property obtained from a sale.Other tax rights to which the investor may otherwise be entitled underthe law may also be waived.

The transaction may also be conditioned upon an agreement where neitherthe investor nor any other party has a right to interfere with theoriginal owner's living conditions or preferences. The transaction isalso beneficial from a financial standpoint. For example, under recentlyissued IRS regulations, a homeowner may defer paying Federal income taxon gain from the sale.

Another object of the present invention is to provide an investmentmarket somewhat equivalent to a stock market, except that instead oftrading stocks bundles of partial residential property-based rights aretraded, transferred, or otherwise exchanged between or among investors.The property in each bundle may be located in a same geographic areaincluding but not limited to a same zip code, census tract, community,city, county, or state. Alternatively, the property in each bundle maybe a same type of property categorized by one or more of a variety offactors including price, capacity (e.g., townhouse, condominium,single-family home, or types of single-family homes), amenities(beachfront, lake front, etc.), HUD housing, as well as others.

Another object of the present invention is to provide an investmentmarket where the value associated with one or more partial interests inproperty is transferred by virtue of selling stock in a holding company,which retains tide to the partial property interests and whose stock isat least partially capitalized based on the value of these interests.

In accordance with one embodiment, the present invention provides amethod for performing a business transaction, comprising receiving apartial present interest in real property from a first party andtransferring consideration from a second party to the first party forthe partial present interest. The real property is preferably a primaryresidence of the first party and the consideration includes at least oneasset and a written agreement by the second party to waive rights tocontrol and sale of the real property. The partial present interest ispreferably a minority interest in a house, townhouse, condominium,cooperative, or any other type of residence.

In the transaction, the asset transferred by the second party may be anamount of money, a financial instrument such as stocks or bonds,satisfaction of a debt, or any other item of worth. The amount of moneymay be computed as a percentage of a currently appraised value of thereal property or a percentage of net equity the first party owns in thereal property.

Under the written agreement, the second party agrees to retain or waivea variety of rights. For example, the second party may retain a right toreceive proceeds from a sale of the real property and a right to approveits sale. The first party may also be subject to a number of conditionsincluding payment of taxes, insurance, debt payments, costs, andexpenses. Transfer of consideration may likewise be subject to a numberof conditions including requiring the first party to have a minimum netequity in the real property or requiring the first party to pay allcosts associated with the transfer. The first party may also have anunrestricted right to reacquire all or a portion of the partial presentinterest transferred to the second party. This reacquisition ispreferably based on a current appraisal of the real property. Thetransaction may also be structured so that the first party retains taxbenefits equal to full ownership of the real property. These benefitsinclude a deferral of federal income tax realized by sale of theproperty, mortgage interest deduction, property tax deduction as well asothers.

The second party may be an individual, institutional investor, oranother type of investor, or an entity of which any or all of theforegoing have ownership or other rights in the property. This investormay either retain the interest conveyed in the transaction or transferthat interest to another party in whole or part. In the latter case, inone embodiment, the investor acts as an intermediary who acquires one ormore interests in residential property with the hope of reselling thoseinterests at a profit to subsequent investors. The intermediary may alsoperform a number of administrative functions, or alternatively exchangeof funds may take place directly between buyer (or other entity of thebuyer) and seller with the intermediary performing only administrativefunctions.

In another embodiment, the present invention provides a system formanaging a transaction which involves the transfer of a partial equityinterest in residential property. This system includes a data handlerfor inputting and outputting real estate property transaction relatedinformation, a data storage unit which stores information arising fromthe real estate property transaction and documents all pertinentinformation relating to the transaction, and a processing system whichprocesses the real estate transaction related information includingapplication information, performs documentation checking, and allows forthe extraction and transfer of funds.

In another embodiment, a method for managing a partial equity interesttransfer in real property includes applying for a real estate propertyequity sale and providing information relating to the real estateproperty transaction, enabling a contact and data interface between areal estate owner owning a property interest and a home equity sales(HES) entity, and entering data relating to a real estate propertytransaction. Additional steps include storing information arising fromor related to the real estate property transaction, checking for relatedproperty documentation that provides an input into the applicationprocess, and ensuring that all pertinent property documentation isprovided.

A processing step includes processing all pertinent information relatingto the transaction. A funds exchange between all the partiesparticipating in the real estate property transaction is then performedand all monetary obligations associated with and incurred during thetransaction are satisfied. Documents related to the real estatetransaction are then executed and/or filed and/or recorded.

In another embodiment, a method for selling a partial partnershipinterest in a real estate property includes creating a databaseincluding contact and data interface between a real estate owner owninga property interest and a home equity sales (HES) entity and enteringdata relating to a real estate property transaction. Information arisingfrom the real estate property transaction is stored in a storage medium.An application for a home equity sale may then be made and informationrelating to the real estate property transaction may be input into thedatabase. This information includes ownership information, appraisedvalue of the property, a specific amount of partial interest intended tobe sold and listing of all parties involved in the transaction.

A plurality of transaction parameters are ascertained and adetermination is made to see if the real estate transaction is worthperforming. There is also a checking for related property documentationthat has been input into the database and provides an input into theapplication process and ensures that all pertinent propertydocumentation is provided and wherein the checking function also checksfor completeness or incompleteness of the application and determines ifthe transaction should proceed or not proceed and ensuring that alltransactions conform and comply with all laws governing the transactionincluding federal, state and local laws. All pertinent transactioninformation relating to the transaction is processed in a programmableprocessor. The method determines an approval, a disapproval or aqualified approval of a submitted application in the programmableprocessor.

Funds are transferred between all interested parties participating inthe real estate property transaction and satisfying all monetaryobligations associated with and incurred during the transaction, anddocuments are executed and/or filed that are related to the real estatetransaction and making all the documents of record related to thetransaction of record in the database.

BRIEF DESCRIPTION OF THE DRAWI NGS

FIG. 1 is a diagram showing an exemplary system for selling a partialequity interest in real property in accordance with one embodiment ofthe present invention.

FIG. 2 is a diagram showing one possible interrelationship among partiesin a new type of business transaction provided in accordance with thepresent invention.

FIG. 3 is a diagram showing steps included in a method for implementinga business transaction in accordance with one embodiment of the presentinvention.

FIG. 4 is a diagram showing one way in which a business transaction inaccordance of the present invention may be structured among a pluralityof investors, properties, and a facilitator of the transactionillustratively labeled HES Entity.

FIG. 5 is a diagram showing steps included in a method for managing thesale of a partial interest in real property in accordance with oneembodiment of the present invention.

FIG. 6 is a diagram showing steps included in a method for selling apartial interest in real property in accordance with one embodiment ofthe present invention.

FIG. 7 is a diagram showing another way in which a property interesttransaction may, be structured between a homeowner and investor inaccordance with the present invention.

FIG. 8 is a diagram showing another way in which a property interesttransaction may be structured among a homeowner, investor, and afacilitator in accordance with the present invention.

FIG. 9 is a diagram showing another way in which a property interesttransaction may be structured among a homeowner, investor, and afacilitator in accordance with the present invention.

FIG. 10 is a diagram showing another way in which a property interesttransaction may be structured among a homeowner, investor, and afacilitator in accordance with the present invention.

FIG. 11 is a diagram showing an investment market structure inaccordance with one embodiment of the present invention.

FIG. 12 is a diagram showing one way in which a trade may be performedin the investment market of the present invention.

FIG. 13 is a diagram showing an interactive website which may be used toprovide information related to the investment market of the presentinvention.

FIG. 14 is a diagram showing an investment market structure inaccordance with another embodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT

An HES program in accordance with the present invention offers a choiceto persons having an equity interest in real property. One advantage ofthe HES program is its ability to bridge different communities (e.g.,homeowners, investors, etc.) and thereby bring substantial benefits andimproved synergy to participants from these communities. The HES programfurther provides property owners with immediate access to capital thatwould otherwise not be available to them for many years, except in theform of a debt obligation.

The description that follows will discuss the various embodiments inrelation to a residential homeowner and residential property and theextraction of equity from the sale of partial partnership interest inthe property. However, those skilled in the art will realize that an HESprogram may also be applied and implemented to other forms of propertyincluding, for example, vacation property, commercial property, acombination of residential and commercial properties, without departingfrom the spirit and scope of the present invention.

The capital obtained from the sale of the equity could allow a homeownerto add a large addition to the house, retire high interest consumerdebt, or even finance their existing mortgage package at the best rateavailable due to improvements in their consumer debt profile. The samehomeowner is also free to use this same capital to meet other needs,such as paying for college tuition, cash leveraged major purchases (e.g.cars, boats, vacations, land, etc.), home improvements. The freed upcapital could also be used to invest in other potentially rewardinginvestment opportunities. In other words, there are no limits orconstraints on a homeowner regarding the use of the funds.

The investor who purchases this partial or minority interest, alsoreceives substantial benefits under this same program, whether they area private investor or a large institutional investor or fund. Throughthe HES program, these investors are able to purchase a direct equityownership in desirable properties that have a high expectation ofcapital appreciation, thereby offering the opportunity to increase theirexpected return.

These real-estate, property-based investments would also have a highlevel of safety and security when compared to equity surrogates forcapital appreciation such as common stocks or mutual funds of commonstocks. Historically, owner-occupied residential real estate has beenone of the most stable and non-volatile forms of investment. Inaddition, the HES program operator would have knowledge of local marketsto provide investors with the comfort that the properties are beingoffered for sale in desirable areas.

FIG. 1 shows a preferred embodiment of a system for managing thetransfer of a partial equity interest in real property according to thepresent invention. As will be discussed in greater detail, the transferbetween homeowner and investor takes place through a facilitating partyresponsible for administrating the HES program. The duties and fees tobe collected by the facilitating party vary depending on thecircumstances (e.g., type of property, geographical location,preferences of the parties, etc.). The property subject to transfer ispreferably residential property such as a single-family house,townhouse, condominium, or cooperative. This property may be owneroccupied (e.g., the owner's primary residence) or may be empty oroccupied by another (e.g., a secondary home, vacation home, held asinvestment property, etc.).

The system is preferably formed from an integrated collection ofresources including a processing system 100 and a database 110. Theprocessing system is managed by placement professionals/agents 120 andruns application programs for implementing one or more steps of themethods described herein. By way of example, the programs may allowagents to enter information pertinent to the property interest transferincluding personal, financial, and legal information relating to theproperty and/or the property owner. This information may then bearchived in the database for subsequent reference and modification. Ifdesired, a database search function may be included in order to matchhomeowners and investors based on designated search criteria. Theprograms also preferably include software for computing propertytransfer and transaction costs owed by one or more of the parties,generating forms for reporting title and appraisal information, andcollecting insurance, solvency, equity information relating to theparties and the property subject to transfer. Additional administrativefunctions may also be performed.

For improved efficiency, the processing system is preferably linked tothe title searching company 130 and the appraiser 140 through a network150, however more traditional forms of communication may be used ifdesired. In order to link homeowners and investors, the processingsystem may include or be linked to an Internet server 160 for generatingan interactive website for providing general information about the HESprogram, answering anticipated questions, and providing on-line formsincluding, for example, pre-approval applications. In addition to thewebsite, various other forms of advertising 170 may be used to attracthomeowners and investors to the HES program.

To perform the foregoing functions, the processing system may thereforeinclude a data handler for inputting and outputting real estate propertytransaction related information. The data handler also handlesinformation relating to the owners of the property, the location andaddress of the property, and any third parties that intend to obtain aninterest in the property. The data handler includes one or more datainput devices that enable a contact and data interface between a realestate owner owning a property interest and a HES entity and alsoprovides for the entering and handling data relating to a real-estateproperty transaction.

As previously discussed, the database stores information arising fromthe real estate property transaction. For example, the information mayinclude the appraised value of the property, any lien or titleinformation related to the property, the amount of equity that thehomeowner wishes to sell, and the names of the parties that are involvedin the transaction.

The processing system processes the real estate property transactionrelated information, provides an information base for the extraction offunds from equity in the property, and performs computation and archivalfunctions relating to the transfer (e.g., sale) of the partial equityinterest in property. The partial equity interest is preferably apresent interest, in which case the transfer creates a concurrent estateformed from partial interests held by the homeowner and investor. Thesepartial interests are listed on a new deed or other ownershipalternative generated by the placement professional, the transfer ofwhich may be subject to one or more conditions (e.g., sale-priceapproval) to be discussed in greater detail below.

An objective of the HES program is to bring together both qualifiedhomeowners seeking to exchange a portion of the equity in their homesand members of the investment world seeking a safe investment vehiclewith historically strong returns. The HES program reaches out to bothworlds and develops market approaches on both the consumer and investorlevel.

FIG. 2 shows a preferred interrelationship between interested parties inan exemplary HES transaction. In this diagram, a specific property 200exists that is owned by a property owner 202. An HES entity 204 existswhose main function is to accomplish the sale of the equity in theproperty and also serves as a liaison and clearing house to facilitatethe data and monetary exchanges and all other related real estatetransactions between the property 200, the property owner and anyinvestors 206 that wish to participate in the real estate propertytransaction. Those skilled in the art will appreciate that a propertyowner 202 may sell multiple partial equity interests in the property200. The HES entity 204 may also represent a plurality of differentproperties and the investors 206 may invest in the same propertymultiple times (i.e. buying multiple partial or fractional shares of theoverall equity of the property) or they may invest in multipleproperties across multiple geographic areas.

It should also be apparent that the investors 206 may own the investmentfor themselves and their own financial betterment, or they may alsooffer shares in a mutual fund or other entity that includes a collectionof various equity property interests and market these mutual fund orother entity shares to other investors. The properties invested in mayall be located in one geographic region or they may be located acrossvarious geographic areas and any combinations thereof. Furthermore, theHES entity 204 itself, may provide the fund or other entity investmentvehicle to outside investors (who buy shares in the fund or other entityitself and do not themselves directly own the equity interests in theproperties) instead of the investors 206 or in some combination with theinvestors.

As remuneration for arranging, executing and facilitating the realestate transactions, one exemplary compensation scenario has the HESentity 204 receiving a one time commission sale of 3% of the equity saleat the time of the equity sale. The cost of the sales commission ispreferably borne by the homeowner, with the investor receiving fullcredit for the funds that they provide to the transaction. The investorthen owns this partial equity interest and the investment continues toappreciate pro rata with the total equity of the property.

FIG. 3 is a diagram showing steps included in another embodiment of themethod of the present invention for implementing an HES transaction. Inthis method, a homeowner applies for an HES program 300. Thisapplication process may be done electronically, by a Web interface of anInternet site, or by filling out a paper application. Also, theapplication process can be conducted by homeowners themselves or inconjunction with the assistance of an HES employee that may facilitatethe application process.

Next, there is a documentation checking function 302 that examines allof the pertinent documentation that currently affects or may affect theproperty. This checking function includes examining the appraisal andvaluation of the property, the title of the property and any liensagainst the property. The main goal of the checking function 302 is todetermine that from a legal and transactional standpoint that allrelated documentation is in order and there is no impediment totransferring tide for any of the partial equity interests that are beingsold.

In 304 of FIG. 3, the application is processed. In the applicationprocessing 304, the application is examined for accuracy andcompleteness. For example, the names of the interested parties arechecked and verified, the amount of equity residing in the property isconfirmed, and the partial equity interest to be sold is quantified.Additionally, another check of all the documentation (302) is performedand examined for completeness. If everything is found to be in order inthe application processing 304, the method moves on to the subsequenttransfer of funds 306. If the application processing 304 finds somethingthat is out of order (e.g. missing, incomplete or inaccurateinformation), the method returns to the application stage 300 where theapplication is updated to address the deficiency found in applicationprocessing 304 and then processed from there.

In 306 of FIG. 3, there is a transfer of funds between the participatingparties in exchange for the partial equity ownership interest that issold and those services that are rendered in effectuating thetransaction. Referring back to previous FIG. 2, the main interestedparties are the property owner 202, the HES entity 204 and the investors206. The purpose of 306 FIG. 3 is to ensure that funds are transferredaccurately and promptly between the various parties (202, 204 and 206)involved in the transaction. Also, those skilled in the art will realizethat the funds transferred may be transferred electronically orphysically (e.g. check, cash). Furthermore, in addition to cash or cashequivalents, the funds may also be in the forms of different financialinstruments, including warrants, options and bonds. The system isdesigned to be flexible and scalable to accommodate and handle thevarious types of funds and fund equivalents that may arise from the realestate transaction.

In 308 of FIG. 3 in one exemplary instance, all the necessarydocumentation is generated and recorded where necessary. For example, anew deed to the property is prepared to include both the originalhomeowner and the owner of the partial equity ownership share. Becausethe investor is a named owner on the deed (directly or indirectly)through HES, any pending decisions to place the home on the market andany fiduciary correctness of any pending sale are subject to HES or theinvestor's scrutiny and approval prior to release. As previouslyindicated, another type of ownership alternative may be used in lieu ofa deed for purposes of transferring the acquired equity interest. Forexample, the equity interest might be a contractual agreement specifyinga right, option, or warrant to own that specific economic percentage(e.g., partial interest) of the property.

The documentation includes what percentage of the overall equity hasbeen sold and for what amount. Also, as mentioned previously, the sameproperty can be sold off into a plurality of partial equity ownershipshares and all of this information is then documented and made of recordwhere necessary.

The homeowner remains responsible for all or a proportionate share ofproperty taxes, mortgage payments, repairs, improvements, insurance andgeneral operating expenses of the property. Any transaction costs thatare associated with a particular property including appraisal fees,title recording fees, and transaction fees (e.g. similar to a partialreal estate commission) are paid by or come out of the funds due to thehomeowner. The homeowner would also have the option of, at any time, torepurchase the equity from the fund based on the appraised value at thetime the repurchase would be proposed.

The HES program also allows a homeowner to have the full use of netproceeds from the HES transaction (after deductible costs and fees) fromday one after the closing of the transaction, and have no interestpayments, no requirement to pay anything back to anyone and no entrywhatsoever on the homeowner's credit report.

The successful launch of any new program is dependent upon a soundmarketing strategy and campaign. Homeowners are attracted to this HESprogram through marketing campaigns (both local and national) thatpromote the benefits of the program, specifically the simplicity andexpediency of entering and completing a transaction. The immediate taxbenefits or consequences to the homeowner are also explained in detailas part of the marketing efforts associated with the HES program.Additionally, marketing will emphasize the advantages that the HESprogram has over the more well known home equity loans or lines ofcredit.

Private and institutional investors will also be sought throughmarketing campaigns that explain the benefits of investing in the homereal estate market with the focus on the safety of the investment andthe potential for capital appreciation through equity ownership in thepreferred, more lucrative, single-family home residential markets.

The HES program would also allow investors in slower growth areas (e.g.the Midwest) to own home equity in the more rapidly growing areas of thecountry (e.g. California) with the knowledge that over time, marketforces like retirement migration and controlled growth are likely tocontinue to drive pricing upward on an increasing demand basis.

An HES program engages the services of several senior level consultantsworking on a commission or other basis to attract capital frominstitutional investors. Research has shown that institutional investorswill find the HES program very enticing for its own merits, as well as aportfolio rebuilding strategy that could help them recoup losses thatwere sustained from stock market declines sustained over the past fewyears. Again, owner-occupied residential real estate has proven itselfto be relatively stable and able to provide attractive rates of returnover time.

FIG. 4 illustrates an exemplary diagram of a plurality of investors andproperties and an example of the investment relationships that arepossible between the investors and the properties. There are twoinvestors 404 and 406 that are interested in participating in an HESprogram with reference to two properties 400 and 402. The number ofparticipants in the exemplary HES program are for purposes ofillustration only and it should be apparent that a greater or lessernumber of investors and properties and various combinations thereof maybe used without departing from the spirit and scope of the presentinvention.

Property A 400 is divided into N fractional partial ownership interests(1, 2, 3, . . . N) and Property B 402 is also divided into N fractionalpartial ownership interests (1, 2, 3, . . . N). Investor A 404 is shownto own two fractional partial ownership interests in Property A 400 (1and 2) and one fractional partial ownership interest in Property B 402(1). Investor B 406 is shown to own two fractional partial ownershipinterests in Property A 400 (2 and 3) and two fractional partialownership interests in Property B 402 (2 and 3).\

FIG. 5 is a diagram showing steps included in another embodiment of themethod of the present invention for transferring a partial equityinterest in an owner-occupied residential real estate property. Thismethod includes allowing prospective HES program participants to applyfor a real estate property equity sale and providing information thatrelates to the real estate property transaction. (Block 500). This stepincludes permitting direct and indirect participation in the real estatetransaction. In other words, an applicant may enter application datadirectly into the system (e.g. via a web interface). Alternatively, anapplicant may work with an HES customer service representative, who thenenters the data indirectly for the applicant.

Next, contact and data interface is enabled between a real estate ownerowning a property interest and an HES entity. (Block 501). Thisinterface allows entry and manipulation of data relating to the realestate property transaction. This data includes, for example, ownershipinformation, appraised value of the property, the specific amount orvalue of the partial equity interest to be sold, and a listing of allthe parties involved in the transaction.

The entered information is preferably stored in the database (Block502), and a check is performed to ensure that all property documentationand other information required for the application process has beenobtained (Block 503). A check may also be performed to confirmcompleteness or incompleteness of the application and to support theultimate determination of whether the transaction should proceed or notproceed, i.e., whether the application should be approved. (Block 504).An additional check may also be performed to determine if additionalinformation is required or if information needs to be corrected before afinal approval on the transaction is granted.

One or more processing steps are then performed, during which theentered information is preferably organized and used as a basis forcomputing commissions, costs, and importantly the price the investorwill pay for the partial property interest as well as the technical formof the equity interest shall take (e.g., deed, option, warrant, right,etc.). (Block 505). The processing also provides a final disposition ofa submitted application and ensures that any fees or any compensationdue to any of the participating parties is identified and paid out.Additionally, processing steps may also be performed to process astandard type of home equity loan or line of credit. Those skilled inthe art can appreciate that one or more of the computation stepsdescribed above may be performed by a placement professional if desired.

An optional funds exchange step may be performed to transfer fundsbetween all the parties participating in the real estate propertytransaction and satisfy all monetary obligations associated with andincurred during the transaction. (Block 506). This may includetransferring funds in all directions between the various interestedparties and will handle cash, checks and all other types of cashequivalents. The exchange may also handle warrants, options, financialinstruments, financial derivatives and debt instruments.

All documents generated by the property interest transfer arefiled/recorded as required by law. This includes a new deed or otherownership alternative reflecting the ownership of the transferredproperty by all parties involved. Another ownership alternative mayinclude an interest conveyed by contract, which interest would then berecorded, for example, as a lien in connection with the property. Thisalternative interest transfer may be beneficial for purposes relating tolocal ordinances or business issues from executing a new deed to theproperty, such as a property tax reassessment or the trigger of adue-on-sale clause, or for other reasons.

In another exemplary embodiment of the present invention, a method formanaging the transfer of a partial equity interest in an owner-occupiedresidential real estate property is shown in FIG. 6. FIG. 6 includesapplying for the sale 600 of the equity interest in the property. Adatabase is created 602 that includes contact and data interfaceinformation between a real estate owner owning a property interest and aHES entity. Also, data is entered relating to the real estate propertytransaction.

The HES transaction information is stored 604 as well as the databasethat was created in 602. All of the transaction information is alsochecked in 606. For example, 606 checks for completeness orincompleteness of the application and in conjunction with processing thesale 608, determines if the transaction should proceed or not proceed.

After processing the sale 608, funds are transferred 610 between theparties. For example, an equity interest is sold to an investor inexchange for money or other value that is conferred upon the propertyowner. The equity interest is filed/recorded on the deed or otherownership interest and shows that the investor is now in possession ofan equity interest in the property along with the property owner ofrecord.

FIGS. 7-10 show various ways in which a transaction may be structured inaccordance with the present invention. In FIG. 7, only two parties areinvolved, namely the homeowner and an investor who may be an individualor other entity. The investor may also be the intermediary HES, who inthis case may take ownership of the partial interest in real propertyand either hold that interest or sell or transfer that interest at alater time to a third party. If HES holds this interest, it may do so bytransferring the interest to a REIT, a holding company, or otherbusiness entity or fund.

The transaction in FIG. 7 is structured so that the investor transfersan asset to the homeowner in return for a partial present interest inproperty. The asset may be a sum of money as previously discussed (e.g.,the lesser of 20% of the currently appraised value or 50% of the owner'sequity) or some other form of consideration. The investor alsopreferably executes a written waiver of rights to control and sale ofthe property. The transaction may therefore leave the homeowner with oneor more of the following rights: right to full control of the property,right to determine whether the property is ever sold and if sold theconditions of the sale, right to repurchase transferred equity in theproperty, and a right to defer federal income tax related to theinterest transfer (this is dictated by prevailing IRS regulations).

The homeowner may be left with the following obligations (and all or aportion of each): duty to pay property taxes, insurance, mortgage andother debt payments, duty to make repairs and improvements, and duty topay operating expenses. In the event the homeowner makes improvements(e.g., adds a deck or room, finishes a basement, etc.), the homeownermay be required to sign an agreement to allow the investor to reap a prorata portion of the increase in property value/sales price of the houseobtained by those improvements, even though the investor did not pay forany portion of the improvements. For example, if adding a new roomresulted in a $50,000 increase in the sales price of the property, theinvestor would receive a pro rata portion of the $50,000 increase (e.g.,20% of the sales price or 50% of the homeowner's equity, whichever isless) even though he paid no portion of cost for building the new room.The homeowner may also be obligated to pay transaction costs including acommission fee to HES, title recordation fee, appraisal fee, etc.

The investor rights include a right to receive proceeds from asubsequent sale of the property (if the sale should ever occur) based onthe transferred interest, and an optional right to approve of the saleprice. The investor obligations include executing an agreement to waiverights to control and sale of the property. This agreement preferablyruns with the land as to all subsequent bona fide transferees.

FIG. 8 shows another way in which a property transaction may bestructured in accordance with the present invention. The transactioninvolves three parties: the homeowner, an investor, and HES which actsas intermediary between the two. Unlike FIG. 7, HES never owns thepartial property interest being transferred. Rather, HES acts as afacilitator, first, to link the owner and investor and, second, toperform a variety of administrative functions to facilitate thetransaction. The homeowner is left to pay transaction costs to thefacilitator, which costs may include a commission fee based on acurrently appraised value of the property, a title recording fee, and anappraisal fee. For higher priced properties, these costs may besubstantial, thereby allowing HES to reap significant profit from thetransaction.

FIG. 9 shows another way in which a property transaction may bestructured in accordance with the present invention. This transactionalso involves three parties, however unlike FIG. 8 the facilitatingparty purchases the property interest from the homeowner for latertransfer to the investor. The interest may be a minority interest,however any partial interest in the property may be transferred ifdesired.

FIG. 10 shows another way in which a property transaction may bestructured in accordance with the present invention. This transactionincludes the same three parties as previously discussed. However, unlikethe previous transactions the facilitator (HES) bundles the propertyinterest received from the homeowner with one or more partial interestsin other properties, which, for example, may be located in the samegeographical area (e.g., same community, county, or state). Thisbundling embodiment of the present invention is especially attractive toinvestors when all properties are located in an area where propertyvalues are anticipated to rapidly increase in the near future. Areas ofthis type include ones where the demand for housing is expected to growprecipitously because of an influx of population, business, capital, orother resources.

Although not shown, an institutional investor such as a mutual fund orReal Estate Investment Trust (REIT), may also participate in the HESprogram and own multiple ownership shares in a plurality of investmentproperties. Any of the operating and investment principles that are wellknown in the financial community (financial partnerships or groups, suchas mutual funds) may be applied to the HES program. A mutual fund may beformed completely by assets that are derived from an HES program or thefunds may be hybrids that invest in different combinations of assets,including HES program assets as a portion of their asset allocation mix.

Another group of institutional investors that should find the HESprogram interesting is pension funds. An HES program will be veryappealing to these fund managers, because data shows that historically,since 1960, appreciation rates of owner-occupied residential real estatehas outperformed the Stock Market's average annual returns, while at thesame time having dramatically lower volatility. Upon obtaining acomplete understanding of how the HES program operates, it is expectedthat the demand amongst the institutional investment community toparticipate in available HES program portfolios will acceleratedramatically.

HES provides its local knowledge in the market to assure that theinvestors in the HES fund receive full value for their ownership, shouldthe homeowner put the house up for sale. While HES will not interferewith the homeowner's plan to sell, the requirement to sign off on thedeed or other ownership alternative will assure the investor that thehomeowner is indeed attempting to obtain the highest possible sale pricefor the property. This would ensure that the investment of any HESprogram participant is protected from a “fire sale” or some other saleat less than fair market value for the property.

An important aspect of HES program operation is a successful marriagebetween the specific needs, desires and expectations of homeowners andinvestors and what outcomes they desire from the various investmentopportunities. Homeowners would be solicited in a specific geographicarea through a number of channels, including newspaper advertisementsand spots on local radio and television stations. For example, onemarketing campaign would use “Local Insert” television advertising thatis inserted on the local level to cable and satellite TV subscribers andrun as commercials during breaks in CNN or Financial News, targetingmore sophisticated home ownership in the area.

These aforementioned types of solicitations would inform the homeownerof some of the highlights of the program for their benefit and directthem to a Website or toll-free phone lines for more information.Additionally, local seminars may be held to generate interest, explainthe program and create a sense of immediacy about participating in theprogram. Upon attending one of these seminars, there would be anopportunity to learn what funds and investments might be available tothem and apply to the program if they desire. The completion of a fullapplication would give them a more specific evaluation as to what theequity in their home would be and what kind of capital could beavailable to them through an HES program. These types of “Jump-StartPrograms” would be aggressively utilized in the early days ofapproaching a new locality.

Based on the successes of some of the newer marketing models for homere-financing markets, HES anticipates that the Internet will play asignificant role in not only how homeowners learn about the program, butin some of the hands-on factors of qualifying themselves, answeringtheir own questions and filling out applications over the Internet.

It is anticipated that many homeowners will want to avail themselves ofmore services from HES. For example, they may request the services of anHES representative by telephone and ask for help and assistance in thevarious stages of making an application, on through the signing of finaldocuments and receiving payment for their sale of equity to investors.

HES will hire and train “Placement Specialists” to work directly withthese enquiring homeowners to assist them with the entire process. ThesePlacement Specialists will be experienced at qualifying the applicants,as well as becoming knowledgeable about the specific property, itsneighborhood and current comparable trends in the same market. It is forthese reasons that current real estate professionals will playsupporting roles in the rollout and execution of HES programs, becauseof their specialized knowledge and experience in dealing with realestate property related matters.

HES Placement Specialists will have direct access to the sameinformation utilized by all other professionals in that same real estatemarket. This includes title company profiles as well as tax and deedinformation at the county level and comparable property sales in theimmediate area. Placement specialists will also dispatch a locallyrecognized home appraiser to evaluate the current status of the propertyidentifying any outstanding issues and establish a valuation for theproperty at present value.

Many consumers appreciate the opportunity to research their own optionswhile staying free of pressure that is exerted on them from commissionedsales people. The HES website will allow the consumer to independentlyview the main information about the HES program and answer their ownquestions as to the range of equity portion that they may qualify for.An on-line calculator will let them enter the assumed current value ofthe property as well as the remaining mortgage owed to give them a basefigure of approximate equity. For example, in one exemplary applicationscenario, the application will use the 20% of gross value versus 50% ofequity formula to compute what range of equity purchases the HES programwill allow. Other equity formulas and percentage participations may beused in conjunction with the HES program without departing from thespirit and scope of the present invention.

As with many other mortgage websites, a consumer would be able to backout of a session and maintain anonymity or begin the process of learningmore about a potential transaction with HES. They could make their owngeneral application on line at this point, or simply call toll freenumbers for general information or to set a workday appointment for anHES Placement Specialist to call. The option of making such a generalquery by e-mail or through an on-line conversation would also directthem to a 24-hour general information “scripted service,” once againessentially doing a set-up for an appointment by phone or on-line withan HES Placement Specialist. The idea is to make the entire process asconsumer friendly as possible and to provide all the possible investmentoptions to the consumer so that they can make an informed decision.

The HES website would have the usual “Frequently Asked Questions” or FAQfor the on-line shoppers. A certain group of applicants and otherprogram participants will prefer to do the initial application via FAXor even by mail. Each applicant will be free to choose the form ofcommunication they are the most comfortable with. For purposes ofconformance and satisfying the applicant, the Placement Specialist willuse whatever communication medium the applicant wishes to use.

HES Placement Specialists would be specifically trained to be cognizantof many of the background issues that applicants might have or encounterduring the entire process. For example, it is often important to theapplicant that they are able to continue living in the home. Thisobjective is easily accommodated by the HES program. Many olderindividuals that might apply to the program are unwilling to incurfurther mortgage debt as required with the Home Equity Loan Programs, orto lose ownership rights as is common with the “reverse mortgageprogram” offered to senior citizens. In certain cases, the applicant maybe at the end of their income earning potential and may not qualify fora favorable second mortgage rate. They may have some apprehension andunease about disturbing the primary mortgage company and any issuesregarding their income or credit that may ensue. Again, these are allobjectives that are achievable with the HES program.

As mentioned earlier, many consumers borrow against a portion of thoseassets and equity in a home and repay a loan with interest. However, HESoffers the homeowner another choice, which includes selling a portion oftheir existing equity and having no interest to pay and no principal torepay. The homeowner incurs no impact on their lives, living standard oruse of primary residence. Additionally, thanks to a recent ruling by theInternal Revenue Service, the exclusion of gain from sale of a principalresidence still applies.

By using the HES program, the investor is participating in theappreciation of the partial equity ownership that they have purchased,while at the same time, the real estate property homeowner is giving upthe potential increase in market value in the portion of the homes thatis being purchased by the HES program investor or investor groups.However, economic analysis has shown that a homeowner is still likely tocome out ahead in using the HES program rather than borrowing againstthe equity in the home. The various costs (e.g. principal, interest andopportunity costs) associated with this borrowing are often higher thanthe average annual appreciation value or real estate over varioushistorical time periods.

As part of implementing an HES program, a number of potential “BridgingPrograms” would allow principals from the existing real estate arena toshare in some of the marketing opportunities surrounding the HESprogram. Real estate agents are often quite aware of the progress ofpersonal decision-making on the part of homeowners in their territory.

A homeowner may be reluctant to place their home on the market, but mayinstead be a strong candidate for the HES program. If that particularagent was an enrolled sales agent for the HES program, they mightpersuade the homeowner to apply for an HES transaction instead ofplacing their home on the market. For performing this service, the agentwould receive some fair compensation for their efforts to stay abreastof the homeowner's needs. This allows the agent to provide a moretailored solution for their client, while at the same time providinganother source of business and revenue from the agent.

Additionally, many bankers have essentially become sales people andcustomer representatives for the loan industry. Few banks carry theirown mortgages or re-finances, with most banks choosing to sell them offto large private or government-funded national mortgage holders for aset commission payment. HES could work with these banks to offer a newproduct that would provide an alternative to the conventional re-fi,2.sup.nd mortgage or home equity line of credit. The bankingestablishment would receive a set commission from HES to compensate themfor their efforts.

It is anticipated that the HES program would become a welcome additionto many community-oriented banking and home loan institutions. Theseinstitutions would be qualifying their customers as part of thetransaction and would in effect be doing much of the work that wouldnormally require HES staff time. Paying these institutions a commissionwould be a fair trade in terms of reduced staff time and incentivesnormally incurred and now offloaded from an HES program entity.

Marketing relationships would be developed with various lendinginstitutions to market the HES program. HES would produce a trainingcomponent to market this work efficiently and a series of handbooks andinstructional videos for these marketing partners would also be created.

HES would be responsible for the initial training of these partneringinstitutions and would provide ongoing sales materials, legal documentsand promotional brochures. For example, a ready “Plug-in” module wouldbe available for their Home Loan web page, also provided by HESmarketing. HES would also have an ongoing responsibility to providerefresher type training and keep the sales associates abreast of anyupdates or changes in the documents.

HES will manage all transactions for the homeowners, with the portfolioof ownership turned over to investors. In exchange for these services,HES will receive a variety of fees from the participating homeowners andthe funds to produce its operating revenues.

There is another advantage of participating in an HES program. Intoday's world and economic climate, credit worthiness and availabilityof credit is important to many individuals. The HES program helps thehomeowner build his credit rating by selling a portion of his propertyinterest as a way of obtaining an interest-free influx of cash, withoutany debt-based entry on any credit reporting agency.

Another major advantage for homeowners in the HES program is the Federalincome tax treatment. The exclusion of gain from the sale of a principalresidence is available for sales of partial interests. The followingexample illustrates this advantage. Under a regulation promulgated bythe IRS in December 2002, the sale of a minority percentage ownership inan owner-occupied single family home will not result in any currentFederal income tax liability. Thus, any potential capital gains taxliability arising out of profit realized by the homeowner from a partialproperty interest transaction in accordance with the present inventionwould be deferred until there is a sale of the entire property. At thattime, the deferred transaction would be folded into the total sale andthe gross capital gain to the homeowner calculated at that time only.

Accordingly, should the total sale transaction fall within the currentexemption for capital gains given to homeowners for the sale of theirprimary residence (currently about $500,000 for a married couple), thenno Federal income taxes would ever have to be paid. If the total felloutside the exemption limit, then the capital gains tax liability wouldbe incurred only at the time of the sale of the entire house.

The HES program may be implemented to continuously monitor the latestlegal developments and taxable consequences relating to Federal, stateand local municipalities. The HES program would then be updated toensure conformance with all related laws and regulations, while at thesame time maximizing the benefits that HES program participants areentitled to, while minimizing any harm or disadvantages that may arisein the future due to a changing legal or regulatory environment.

The HES program has set certain criteria for equity purchases to assurethat the homeowner retains a significant amount of equity in theirprimary residence, continues to take care of it and remains responsiblefor full payments of all first mortgage amortization costs, all localproperty taxes and assessments, any and all insurance costs on theproperty and any and all liens of any types to assure that the homeownercontinues to retain full ownership and responsibility for the property.

Candidates for the HES program would include any homeowners havingsignificant net equity in their primary residence who might look to aconventional refinancing or securing a home equity loan or line ofcredit as a likely candidate to look at an HES program as an extremelyattractive alternative.

In one exemplary embodiment, the application forms for homeowners wouldbe simple, since no income or job requirement data is necessary. Aconventional title search of the property would reveal all titling andlien data necessary. One example of a rule would be that HES wouldadhere to the rule of the lesser of 20% of the appraised value of thehouse, or 50% of the net equity over all mortgages to assure that thehomeowner in the residence continues to have a very significant interestin the property

There are preliminary parameters for operating the HES program. Forexample, these include a minimum and maximum allowable dollar investmentin a home, a minimum and maximum percentage investment in a home, a feeschedule, a buy-back program and a time schedule for completion of eachtransaction.

In Example 1, the following initial parameters are:

Minimum Investment: $25,000

Maximum Investment: $300,000

Percentage Investment: The lesser of 20% of the current appraised valueof the property or 50% of the net equity of the property held by thehomeowner after deducting the current balance of any and all mortgagesor other cash liens against the property.

Fees: HES will charge a fee of 3% of the Investment to be deducted fromthe homeowner's payout. Also to be paid by the homeowner will be passthrough fees payable to title companies and appraisers for expenses ofthe transaction.

BuyBack Program: HES will offer homeowners a standing BuyBack Provision,to allow the homeowner to repurchase his Equity at the Appraised valueat the time of the Buy-Back.

Time Schedule: HES will design the program to have a goal of achieving aclose of escrow on each transaction within 21 days of receiving thesigned application from the Homeowner.

The present invention may also be adapted to provide first trustfinancing. For example, the sale of a partial interest in real propertymay in many cases trigger the due-on-sale clause in the homeowner'smortgage. To prevent this clause from being triggered, consent to theproperty interest transfer may first be obtained from the mortgageholder or other lienholder. Also, if the homeowner wishes to refinancethe property, the transferee of the property interest (e.g., HES or aninvestor) may perform the refinancing to release the first lienholder ofthe original mortgage. In this situation, consideration for the transferwould involve both debt and equity. Further, the transferee may partnerwith a bank to obtain funds for refinancing the property. As analternative to avoid triggering a due-on-sale clause, an option or rightmight be utilized rather than an actual entry on the property deed.

As an incentive to further investment, the homeowner may agree toindemnify investors for the consideration paid and any financialobligations or liabilities created as a result of the transfer. Thissituation may arise, for example, if the homeowner were to default onhis mortgage. To protect the homeowner, insurance may be obtained tocover the indemnification.

In accordance with one or more of the foregoing embodiments, HES mayoperate as real estate broker to enhance convenience of the transaction.In this scenario, HES would engage the parties and handle any or allqualifications required.

The previous example has been shown for purposes of illustration and itshould be apparent to those of ordinary skill in the art that differentminimum and maximum investments, fees, processing timelines and anyother processing parameters or variables are possible without departingfrom the spirit and scope of the present invention.

The HES program offers a simple, efficient and economical vehicle thatis simple, efficient and economical for the company to operate, and“user friendly” for both the homeowners and the institutional investorswho would own the portfolio of ownership. These objectives areaccomplished with any combination of proprietary software that HES willcommission, as well as off-the-shelf software and business linkages withcompanies (e.g. title companies) whose normal business operations willbe highly compatible with HES related products.

The following description outlines one exemplary embodiment of animplemented HES program. A marketing program will include direct leadsfrom advertising in both print and electronic media, an interactivewebsite and marketing affiliations with commercial banks and savingsinstitutions which would normally promote second mortgage loans or homeequity loans and lines of credit. Since a majority of these lendinginstitutions never keep their own mortgages anyway, it is anticipatedthat they will eagerly promote the HES program as another fee-basedproduct to offer to their customers. An additional source of leads willbe real estate professionals that desire a new source of fee income forthemselves and their respective brokerage firms.

To implement an HES sales event, an individual from one of the abovesources would be introduced to a placement associate (PA) forimplementation. The PA would make initial contact with a homeowner andascertain the key data points necessary to continue the process. Thesekey data points include the address of the property, the age of thehome, the homeowner's estimate of the value of the property, theexisting mortgage debt on the property, the assurance that the homeowneroccupies the dwelling as a principal residence and the approximatelength of time that the property has been owned by the homeowner.

The PA would then check the property address via the computer link witha title company and search for any unusual property liens, possiblecounty tax delinquencies or other data that conceivably could disqualifythe property from consideration. For example, this process could beaccomplished within a few hours.

Assuming the property meets HES criteria, the PA would then send anapplication and explanation package to the homeowner by overnight mail.The explanation package would discuss the entire process, disclose allfees, and include the full proprietary document package to effect thetransaction.

The application itself would be quite simple, with disclosure requiringonly minimal data about the property and the homeowner, since no credit,income or other data would be required. The homeowner will be asked tofill out the application, sign it and send it back (e.g. electronically,mail, FAX, etc.). In the alternative, in a web-based implementation ofthe present invention, an individual can access the HES website and fillout the application online.

Upon receipt of the signed application, the PA will conduct furtherbackground checking on the homeowner and indicate a preliminary approvalof the property for participation in the HES program. The PA will thenre-contact the homeowner, set an appointment for an appraisal toestablish a value for the property and inform the homeowner of the rangeof investments possible for that property under the HES program. The PAwill then send an additional form (e.g. FAX or e-mail), asking thehomeowner to fill in the specific amount requested (i.e. the amount ofequity that they want to sell), pending confirmation of the value of theproperty by a licensed appraiser.

An administrative group or other support group associated with the PAwill contact the appraiser for that area and coordinate the appointmentwith the homeowner. Once the appraiser's report is received, the PA willforward the recommendation for that property to a decision makingauthority (e.g. an investment committee), which will then endorse therecommendation for that property to an investment committee. Thedecision making authority can make various decisions including approvingthe transaction, disapproving the transaction or deferring a decisionuntil further information is provided to the HES program.

The investment committee will endorse the recommendation and select theappropriate institutional investor for that particular property. Thehomeowner, the title company and the institutional portfolio will beinformed, and a date to close escrow on the transaction will beselected.

Once the transaction is closed, the appropriate funds dispensed, and thetitle company has recorded or filed the deed or other ownershipalternative, the paperwork will be sent to the institutional investor aswell as to the HES portfolio management department for inclusion in itsrespective file.

Major institutional investors, including pension funds, endowment funds,foundations and personal trust accounts that invest in equities arestill adversely affected by the steep stock market declines of recentyears. The HES program should be a winner and attractive alternativeamong institutional money managers that are oriented toward equityinvesting, but currently dissatisfied with the volatility of stockmarket equities.

There has always been a demand to invest in real estate, both from theprivate investment community as well as the institutional community toinvest in real estate. Real Estate Investment Trusts (REITs) have becomea very common investment vehicle for both private and institutionalinvestors. However, REITs only involve commercial-type real estateinvestment. No owner-occupied single-family homes are known to beincluded in any REIT that currently exists. Unfortunately,commercial-type real estate is dramatically more volatile and dependentupon a healthy economy than is real estate based on single-family homes.Therefore, the HES program delineates a program offering minoritypercentage ownership of America's owner-occupied single-familyresidences. This program lends itself to institutional investors whowant to take advantage of this safe, secure and potentially rewardinginvestment opportunity.

Market-Based Investment Model

In accordance with the present invention, a new type of investment modelmay be formed from the foregoing embodiments. In this model, partialinterests in one or more residential properties are publicly orprivately traded (e.g., bought, sold, or otherwise transferred) betweenor among investors in a market setting. The property interests arepreferably bundled together to form trading entities. By way of example,one bundled entity may include partial present interests in residentialproperty located in a zip code, census tract, same community, city,county, or state. Another bundled entity may include partial presentinterests in residential property categorized by price, capacity(townhouse, condominium, single-family home), amenities (beachfront,lake front, etc.), and/or any other type of classification.

FIG. 11 is a conceptual diagram showing how a market may be formed fortrading bundled entities of partial property interests, hereinafterillustratively referred to as partial property interest (PPI) funds. Inthe diagram, four PPI funds are shown: the Santa Barbara fund, theSouthfield fund, the Fairfax County fund, and the Panama City fund. Thefirst fund bundles partial interests in 10 residential properties in theSanta Barbara region of the country. The second fund bundles partialinterests in 1,500 residential properties in the Southfield, Mich. area.The third fund bundles partial interests in 3,000 residential propertiesin the Fairfax County area of Virginia. And, the fourth fund bundlespartial interests in 450 properties in the Panama City, Fla. area.

Each PPI fund is owned by one or more investors seeking to obtain aprofit from appreciation of the property interests in the fund. Aspreviously described, the decision to sell each property included in thefund preferably resides solely in the homeowner. When a sale does occur,a share of the proceeds is transferred to the investor based on thepartial property interest held in the fund. For example, if the owner ofhouse #1 in the Santa Barbara fund sells, a pro rata portion of theproceeds is transferred to the investor who owns the Santa Barbara fundand the property holdings in the fund is reduced by one (i.e., the fundincludes partial interests in the remaining nine properties after thesale of house #1).

While investors do not have a right to sell the properties connectedwith their funds (by virtue of their agreed-upon waiver), they do havethe right to sell their funds to other inventors. FIG. 12 depicts thisscenario, where Investor A sells the Santa Barbara fund to Investor B inexchange for some form of consideration, e.g., cash, cash equivalent,debt satisfaction, and/or some other asset or combination of assets. PPIfunds are preferably sold at their owners' discretion. For example,Investor A may determine that a 10% appreciation in the value of theSanta Barbara fund is a sufficient return on investment. Investor B maydetermine, however, that the property in the Santa Barbara fund maypotentially increase by another 20%. Both parties therefore potentiallybenefit from the trade.

The present invention thus allows for the formation a new type ofinvestment market where (instead of, for example, stocks) PPI funds aretraded between investors in a way that provides substantial benefit toall concerned. For the investor, a new low-risk, potentially high-yieldequity is offered which is more flexible than other investment options,including REITs which are based on ownership of whole interests inproperty, are inflexible investments, and come with considerable lessfavorable tax consequences than PPI funds. For the homeowner, PPI fundsprovide a source of capital which is obtained free from debt and comeswith no constraints on use, all while allowing the homeowner to occupy,manage, and retain full control of the property. And, for thefacilitator (e.g., HES) a business model is created whereby fees andcommissions are collected from facilitating trades, managing investorPPI fund portfolios, providing periodic fund valuation reports, as wellas other investor/investment-based services.

PPI fund trades may be facilitated in any one of a variety of ways FIG.13 shows one way which involves a computerized network (e.g., anInternet website) which posts recent PPI trades and their associatedsale price, PPI funds available for sale, offers for sale of specificfunds, as well as other information subject to regulation by the SEC orother type of governmental oversight entity. The website may be managedby the facilitator (HES) and trades may be made by subscriber-investorswho have an account number and password. The sale and purchase of aspecific fund may then proceed in a manner analogous to an on-line stockpurchase, with an agreed-upon or percentage commission being charged tothe buyer and/or seller. Portfolio valuations, trade historyinformation, periodic (e.g., end-of-year) tax reports, and otherinvestment-related information may be offered to subscribers for apremium.

Valuations may be performed using any one of a variety of modelsencoded, for example, into proprietary software. Examples includeventure-capital models, collectibles models, modified REIT-valuationmodels, etc. The valuations produced from these models may, for example,be based on neighborhood comparables available from real estatedatabases. For example, all ten properties in the Santa Barbara fund maybe located in the same neighborhood. The sale prices of the three lastproperties sold in the neighborhood (outside the fund) may be used as abasis for valuing the properties and thus the ten interests in the fund.

For the convenience of the investor, each homeowner may be required towaive the right to consent to subsequent transfers of the partialinterest sold, e.g., if the homeowner sells a 20% interest in his hometo an investor, the investor may resell that interest at any timewithout the consent of the homeowner. Also, the facilitator, homeowner,or investor may make arrangements with the lienholder (e.g., mortgagee)of the property to agree to waive the due-on-sale clause for anyinterest in the property sold to a PPI fund by the homeowner andsubsequently sold by a PPI fund investor. Alternatively, the originalmortgage may be taken by the homeowner with this understanding from themortgagee. Preparation and recordation of new deeds or other ownershipalternatives generated from each sale or trade may be performed by thefacilitator.

In the event that a waiver from the mortgagee is not possible, eachtrade may trigger a due-on-sale clause in the properties included in thefund. As part of its investor services, the facilitator (HES) mayundertake obtaining new financing for the properties, performing allrequired re-valuations, etc.

While each fund shown in FIG. 11 has been described as bundlinginterests in properties located in the same geographic area, other PPIfunds may be developed which combine interests in properties fromdifferent areas. For example, a PPI fund called the high-income fund maycombine property interests from all across the country for homes thatare valued in the range $5,000,000-$10,000,000. Funds in other pricecategories may also be created. In accordance with one particularlyadvantageous feature, the PPI fund market may offer/compute a number ofindexes as a basis of allowing investors to gauge market performance.One or more index funds may then be created and sold based on theseindices.

Another way in which trades may occur in PPI fund market is by indirecttransfer. Instead of directly transferring property interests betweeninvestors during a trade (which may necessitate execution andrecordation of new deeds or other ownership alternatives for eachproperty in the fund), ownership of property interests in a fund isretained by a holding company. Then, trades are effectively performed byselling shares of stock in the holding company.

FIG. 14 is a conceptual diagram outlining how this type of market may bestructured. In this diagram, two holding companies are shown. HoldingCompany A owns the Southfield PPI fund as well as other funds B and C,and also retains the deeds (or other ownership alternative) for each ofthe funds properties. The stock in Holding Company A is valued based onthe valuations of the funds it owns. To effectively trade the Southfieldfund to Holding Company B, Holding Company A sells a number of shares ofstock commensurate with the value of the Southfield fund at that time.The transfer of stock (instead of property deeds) makes this marketmodel embodiment of the present invention very attractive from themortgagee's standpoint (because title in the deeds remains in HoldingCompany A and thus no due-on-sale clauses are triggered). The sale ofstock is also more convenient from an administrative standpoint and ispotentially easier to value than former embodiments, which would requirevaluations of the hundreds or thousands of properties in the fund on aperiodic basis. Start-up capital for each holding company may beprovided by one or more investors, denoted Investor #1, Investor #2, . .. , Investor #N in FIG. 14.

The concept embodied in FIG. 14 is only one example of a number ofalternative methods which may be employed in avoiding execution of deedsas a condition to a partial ownership transfer in accordance with thepresent invention.

The one or more embodiments described herein may include a number ofoptions. For example, while one embodiment has heretofore been describedas allowing an investor to retain a right to consent to the sales priceof a property, alternative embodiments contemplate giving no such rightto the investor, i.e., the homeowner may be given full control over whento sell and at what price. In order to protect investor interests, anexception may be put into effect if the homeowner attempts to sell theproperty for a price substantially below fair market value. This mayarise, for example, when the homeowner attempts to sell the property toa relative. To protect the investor interests, the homeowner may berequired to agree that when a below-market value sale occurs, nodistribution of proceeds is triggered. Rather, the investor's interestsremain in the property, now held by the new owner.

Also, in any of the foregoing embodiments the investor purchasing thepartial property interest or PPI fund can waive the right to receiveproceeds from the property sale in exchange for the buyer's agreement toallow the investor to retain his or her partial interest in theproperty. For example, consider the case where the investor owns a 20%share in the property and the property sells for $300,000. In thisalternative embodiment of the invention, the investor will waive hisright to receive the $60,000 (equal to his 20% interest) pro rataportion of the sale proceeds in exchange for the buyer's promise (e.g.,executed in a legally binding agreement) to allow the investor's 20%interest to continue in the property.

This is particularly advantageous to home buyers because it will reducethe amount of money for home purchases. Thus, in the foregoing example,the buyer only has to come up with financing for $240,000 because of the20% interest retained by the investor in the property. This lowerpurchase price will likely greatly stimulate investment in the housingmarket while simultaneously allowing investors to reap potentiallygreater profits as a result of a longer term of property ownership wherevalues tend to go up with time.

In the agreement discussed herein, the investor may waive a right toreceive a pro rata deduction of Federal, state, or local income taxes asa result of the ownership interest obtained by the investor from apartial interest sale.

The foregoing embodiments and advantages are merely exemplary and arenot to be construed as limiting the present invention. The presentteaching can be readily applied to other types of apparatuses. Thedescription of the present invention is intended to be illustrative, andnot to limit the scope of the claims. Many alternatives, modifications,and variations will be apparent to those skilled in the art.

What is claimed is:
 1. A method comprising: locating an investor;locating an owner of at least a minimum amount of equity in realproperty; and facilitating a transaction between the owner and investorusing a facilitator, said transaction including: (a) transfer of apartial present interest in the property in exchange for considerationfrom the investor and (b) payment of a commission by at least one of theinvestor and the owner to the facilitator.